Question

	Barco Company			Kyan Company					Barco Company			Kyan Company
Data from the current year-end balance sheets								Data from the current year’s income statement
Assets								Sales	$	790,000		$	900,200
Cash	$	19,500		$	36,000			Cost of goods sold		587,100			640,500
Accounts receivable, net		33,400			50,400			Interest expense		8,200			16,000
Current notes receivable (trade)		9,800			8,000			Income tax expense		15,185			24,852
Merchandise inventory		84,540			128,500			Net income		179,515			218,848
Prepaid expenses		5,700			7,650			Basic earnings per share		5.28			4.45
Plant assets, net		300,000			305,400			Cash dividends per share		3.81			3.99
Total assets	$	452,940		$	535,950
								Beginning-of-year balance sheet data
Liabilities and Equity								Accounts receivable, net	$	26,800		$	53,200
Current liabilities	$	62,340		$	101,300			Current notes receivable (trade)		0			0
Long-term notes payable		85,800			117,000			Merchandise inventory		57,600			113,400
Common stock, $5 par value		170,000			246,000			Total assets		428,000			372,500
Retained earnings		134,800			71,650			Common stock, $5 par value		170,000			246,000
Total liabilities and equity	$	452,940		$	535,950			Retained earnings		84,825			49,110

2a. For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on common stockholders’ equity. Assuming that share and each company’s stock can be purchased at $95 per share, compute their (e) price-earnings ratios and (f) dividend yields. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
2b. Identify which company’s stock you would recommend as the better investment.

Answer 1

2a	Profit Margin Ratio	Net Income /Net Sales
	Barco	179515/790000*100	22.72%
	Kyan	218848/900200*100	24.31%
2b	Total Asset Turnover	Net Sales /Average Total Assets
	Barco	790000/440470	1.7935
	Kyan	900200/454225	1.9818
	Average Total Assets	(beginning+Closing )/2
	Barco	(428000+452940)/2	440470
	Kyan	(372500+535950)/2	454225
2c	Return on Total Assets	Net Income /Average Total Assets
	Barco	179515/440470*100	40.76%
	Kyan	218848/454225*100	48.18%
2d	Return on common stockholders Equity	Net Income-Pref Dividend/Average Common Shareholder equity
	Barco	179515-0/279813	0.64155
	Kyan	218848-0/306380	0.7143
	Average Common Shareholder Equity	(beginning+Closing )/2
	Barco	170000+84825+170000+134800)/2	279813
	Kyan	(246000+49110+246000+71650)/2	306380
2e	Price Earning Ratio	Market Price per common share/Earnings Per share
	Barco	95/5.28	17.99
	Kyan	95/4.45	21.35
2f	Dividend Yield	Annual Cash Dividends per share/Market price per share
	Barco	3.81/95	0.0401
	Kyan	3.99/95	0.042
3	better investment = Kyan company
	Investment in Kyan company is the better investment as its profitability ratios are high which states investment in it will be more profitable.